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Food aid and the recurrent cost problem in developing countries
Food aid and the recurrent cost problem in developing countries
Anthony Jennings and D. John Shaw Recurrent cost problems are currently being faced by many developing countries and are especially acute in the poorest of them. Although inadequate operation and maintenance is recognized as a key problem area, there is an emerging consensus that there is no simple cause of the recurrent cost problem and that an effective response requires a broad package of measures, including domestic policy changes and international support measures. This article briefly assesses the significance of the recurrent cost problem and discusses the scope for food aid in support of current costs. A range of possible policy options are considered as part of a response. Finally elements of a set of guidelines for determining the funding of current costs are suggested.
/Anthony Jennings is a'lecturer in Economics at the University of Leicester, UK. He has also worked as a government economist in Botswana and Malawi, and for the United Nations on the Programme for Least Developed Countries//.D. John Sha@~ is the Senior Economist, (bffice of Evalua-' tion and Policy, World Food Programme, Rome, Italy/
Recurrent cost problems are currently faced by many developing countries and are especially acute in the poorest of them. In the UN General Assembly Special Session on the crisis in Africa in May 1986, inadequate operation and maintenance (O&M) was recognized as a key problem area. There is now an awareness among governments and donor agencies of the symptoms and effects of the recurrent cost problem at the macro and micro levels. 1 There is an emerging consensus that there is no simple cause of the recurrent cost problem and that an effective response requires a broad package of measures, including domestic policy changes and international support measures. Aid agencies responding to the increasing pressure for recurrent cost support have prepared policy papers for discussion 2 and issued guidance notes for the benefit of their country and headquarters staff. 3 Guidelines on Recurrent and Local Cost Financing have been issued by the Development Assistance Committee (DAC) of the Organization for Economic Co-operation and Development ( O E C D ) to which its members are committed: In recent D A C deliberations, Members have recognized the need for greater allocation of resources to maintaining, upgrading and, where necessary, rehabilitating existing capital stock which is essential to meeting basic human needs and supporting economic growth especially in low-income countries. The need for greater attention to the long-term viability of projects and programmes has also been recognized. 4
This article is based on a report, following a consultancy for the World Food Programme, produced i n collaboration with John Howell, Deputy Director, Overseas Development Institute, London. The views expressed in the paper are those of the authors and do not necessarily represent the views of their institutions.
This article briefly assesses the significance of the recurrent cost problem and discusses the scope for food aid in support of recurrent costs. A range of possible policy options are considered as part of a response. Finally, elements of a set of guidelines for determining the funding of recurrent costs are suggested.
1E.J. Clay and H.W. Singer, Food Aid and Development: Issues and Evidence, Occasional Papers No 3, WFP, Rome, Italy, 1985. J. Howell, ed, Recurrent Costs and Agricultural Development, Overseas Development Institute, London, UK, 1985, continued on page 214
Significance of recurrent cost problem Inadequate planning and preparation, and shortage of budgetary resources, for the operation and maintenance of projects is a matter of serious concern in many developing countries. In the past, new investments have been favoured in the planning and budget allocation
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Food aid and the recurrent cost problem in develophzg countries
processes in developing countries, and external donors have tended to give lower priority to the upkeep of ongoing projects. The under-provision of operation and maintenance has contributed to the low utilization of productive assets. Supposedly productive proiects at the end of their development phase have still not proved selfsupporting, and so they enter a second, third or later 'expansion' phase. Estimated project benefits are substantially lower than predicted. Heavy expenditure incurred on project rehabilitation and/or modification would not have been necessary if facilities had been operated properly and if regular maintenance and major repair works had taken place at the appropriate time. Hard-won advances in the build-up of economic and social infrastructure are at risk as, for example, road and water supply systems deteriorate. There may be adequate recurrent resources to fund a project at a desired level, but inadequate resources to fund similar projects to satisfy demand in the sector as a whole. Thus a recurrent cost problem may arise not in an individual project output falling short of expectations because of inadequate recurrent funding, but in the shortfall in the output of a sector as a whole. The interdependence of sectors - eg agriculture and transport - means the problems may spread. Poor roads and broken-down vehicles with no spare parts means that fertilizer and other key agricultural inputs are not available to farmers and good harvests may not reach the market. At the macro level, fiscal deficits worsen and fewer budgetary resources to support complementary project inputs remain 'uncommitted', after payment of debt service, salaries and wages, etc. This emphasizes the need to ensure a balance between manpower and other recurrent expenses, as well as the need to improve staff efficiency and to reduce unit costs. Some evidence indicates that even when recurrent budgets are high, and/or any deficit is small, a large share of available funds is spent on wages and salaries, leaving few resources for essential materials and spare parts, as complementary inputs to implement the project adequately. The complex nature of the problem of recurrent costs, and the urgent continued from page 213 need to estimate the recurrent expenditure requirements of new and A. Jennings, 'The recurrent cost problem in the least developed countries', investments more accurately, have been increasingly recognized by Journal of Development Studies, Vol 19, governments in developing countries and donor agencies. The need for No 2, 1983. improved institutional arrangements and adequate funding for O&M is 2USAID, Recurrent Costs, Policy Paper, also recognized by both sides of the aid partnership. Washington, DC, USA, May 1982. 3UK Overseas Development Administration, Aid for Recurrent Costs, Policy Guidance Note, No 28, London, UK, Oct 1982. 4Development Assistance Committee, OECD, Development Co-operation Review, Guidelines on Local and Recurrent Cost Financing, Paris, 1980, and DAC, Additional Guidelines on Aid for Maintenance, 1982. 5Club du Sahel/CILSS, Recurrent Costs of Development Programmes in Countries of the Sahel. Analysis and Recommendations, Paris, 1980; C. Gray and A. Marten, The Pofitical Economy of the Recurrent Cost Problem in the West African Sahel,
Harvard Development Discussion Paper 128, Cambridge, MA, USA, 1982; also Symposium on Recurrent Costs in the Sahel, Quagadougou, Upper Volta, Club du Sahel/CILSS, Jan 1982.
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Difficulties in defining recurrent cost problem The most comprehensive and rigorous attempt to study the recurrent cost problem has been carried out by the Club du Sahel/Committee Permanent Inter-Etats de Lutte Contre la Sacheresse dans le Sahel (CILSS). 5 They define recurrent costs as: The set of annual flows of gross expenditure of the government and its agencies,
in local currency or foreign exchange, undertaken in order to generate socio-economic benefits in connection with the operation and maintenance of a unit of installed capacity, regardless of the source of finance of the expenditure in question, domestic or foreign. They define non-recurrent costs as: All expenditures incurred in connection with establishing this capacity,
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regardless of the nature of the expenditure (purchase of capital goods or current imports, personnel payments, etc), the type of payment (in foreign exchange or local currency), and the source of financing. They propose the use of a 'gross' measure of recurrent expenditure rather than a 'net' measure (ie before subtracting public sector receipts, in cash or in kind, to which a project may give rise), and they define optimal O&M of a project in determining the 'proper' level of recurrent cost, in the light of overall development objectives for the Sahel, rather than the rigid economic or technical criteria. The United Nations Development Programme (UNDP)/International Labour Organization (ILO), in their Special Public Works Programmes (SWPs), distinguish between, first, initial investment (the development budget), which includes technical capital, the infrastructure of construction, and human and institutional capital, in the case of personnel who have been specifically trained for the efficient and viable use of the initial investment; and, secondly, recurrent costs (the operating budget) which includes use and maintenance of technical capital, and expenditure related to providing for workers to operate the technical capital. 6 By definition, SWPs are 'major programmes of minor works', and maintenance for five main categories of infrastructure are distinguished: •
•
Irrigation schemes. Cleaning out drainage and irrigation canals,
slope and bund cleaning and backfilling, levelling plots, maintenance of water intakes, manholes and sluice gates, backfilling and compacting small earth dams. Soil conservation. (a) In forest plantations - weed-control and cleaning of young plantations, replacing unhealthy seedlings, pruning and thinning, firebelt clearing; (b) in erosion control works ditch cleaning, evening out cuts and fills, maintenance of hedges and retaining walls. Road infrastructures. Cleaning ditches and run-offs, cleaning pipes, culverts and bridge approaches, raking shoulders and banks, filling potholes and cracks (patching), filling and repacking damaged stretches, minor structural repairs. Water supply. Cleaning approaches to facilities, cleaning wells, reservoirs and catchment structures, replacing damaged water mains. Buildings. Roof maintenance, casting, walls, unclogging water drains and cleaning approaches.
-
•
•
•
The Investment Centre of the Food and Agriculture Organization of the United Nations, in its Guidelines for the Preparation of Agricultural Investment Projects, states: Definition of Costs - the concept of capital items and hence expenditures, is
8UNDP/ILO, The Problem of Post Project
quite broad, and is based on the definition of capital expenditure as those which create 'assets', which are expected to produce a stream of goods and services over a period of years. 7
Maintenance in Special Public bWorks Programmes, Geneva, 1982, and/Special
For operating costs the guidelines state:
Issues Item 4 of the Agenda for the 6th Special Public Works Programmes, Geneva, 1984./ 7Investment Centre, FAO, Guidelines for the Preparation of Agricultural Investment Projects, revised Aug 1982. 81bid.
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Where applicable a table giving phased operating costs should be included. The table, largely derived from the appropriate budgets should show by categories the operating costs for the project farms, the cost of recurring project operated businesses, and the cost of continuing project administration services after expiry of project implementation,s 215
Food aid and the recurrent cost problem in developing countries
The International Fund for Agricultural D e v e l o p m e n t ( I F A D ) , in a policy paper, does not discuss definitions of recurrent costs, but states: The Fund will normally consider for inclusion as project costs only the incremental operating costs arising during the project's implementation period. Where, however, such recurrent costs could prove burdensome to the country's budget at the end of the implementation period, the fund will consider financial assistance for a limited period, in exceptional circumstances, and on a case-by-case basis. 9 Individual bilateral donors vary in their interpretations of recurrent costs. U S A I D , in its policy paper, defines recurrent costs as: Simply those costs of development activities which recur. Thus while the capital cost of any given project, be it a school or a dam, is usually incurred over a short time period, from one to five years, the recurrent costs associated with that asset, teachers' salaries, road maintenance equipment repair - will be maintained over the lifetime of the asset; from twenty to fifty years or more) ° The U K ' s Overseas D e v e l o p m e n t Administration ( O D A ) , in its Policy Guidance Note on Recurrent Costs Financing, makes the distinction between 'offshore' recurrent costs and 'local' capital costs of projects, which it often funds in part or in whole, and 'local' recurrent costs which it does not normally fund. A functional distinction is also drawn between uses of aid for recurrent costs: which may be expected to have a significant impact on the performance of the sector, in particular by strengthening local institutions including local organisational management capability . . . and strictly 'routine' recurrent expenditure purposes should be carefully scrutinised and if possible avoided. 11 In the guidelines adopted by the O E C D D e v e l o p m e n t Assistance C o m m i t t e e in May 1979, and hence endorsed by the m a j o r developed m a r k e t e c o n o m y governments, recurrent cost financing was defined as: transfers of freely-convertible foreign-exchange, or counterpart funds generated from commodity aid, for procurement of goods and services (including salaries of local personnel) required for maintaining and operating a given project/ programme during and after completion of the initial financing. 12 At its simplest, total project cost may be presented in the following form: P c = (KL + KF) + (RL + RF)
9International Fund for Agricultural Development, Lending Policies and Criteria, IFAD/8/REVl, Dec 1978. l°Op cit, Ref 2. 110p cit, Ref 3. 120p cit, Ref 4.
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where P c is total project cost: KL is capital or installation costs - local, eg materials locally available and local labour to reach 'normal operation'; K F is capital or installation costs - offshore, eg imports of materials, foreign labour to reach 'normal operation'; RL is recurrent costs - local, eg materials locally available and local labour used in normal operation; R F is recurrent costs - offshore, eg imports of machinery, spare parts, materials, foreign labour in normal operation. An advantage of this approach is that it encourages both recipient and donor to be more realistic and explicit about the length of time actually required to 'establish' the type of 'productive capacity' inherent in the project. To bring productive activities to a stage of 'normal operation' is often much longer than the standard 'initial financing phase', which m a y be only two or three years, and not a function of budget regulations and statutory limits on c o m m i t m e n t and disbursement periods. Longer, m o r e realistic planning periods, and multi-year commitments, should therefore be encouraged.
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Food aid and the recurrent cost problem in developing countries
A difficulty of treating all O & M costs up to 'normal operation' as recurrent costs is that for many projects there is likely to be a problem of 'open-endedness' with financing for the attainment of 'normal operations' standards pre-empting any new expenditure. There could also be a problem of increased dependency on external assistance. A further difficulty is that the concept of 'normal operation' involves considerable subjective judgment. It implies that both the generation of benefits and cost recovery have reached a plateau or stable trend such that the long-run recurrent cost burden may be assessed with a reasonable degree of accuracy. It does not imply 'viability' in the sense of assurance that finance will be available, either internal or external, to meet the future costs of operating and maintaining the project in accordance with its original design. Many questions remain unanswered from the different definitions of recurrent costs used by multilateral and bilateral donors. How to determine installed capacity? How to determine 'normal' project operation? How to distinguish between 'routine' and 'periodic' maintenance, and between maintenance and rehabilitation? How to avoid open-endedness and dependency? Should a functional distinction be made between uses of aid for recurrent costs, which could be expected to have a significant impact on the performance of the sector and to avoid 'routine' maintenance? All these are questions needing further research, clarification and common understanding.
Scope for food aid in support of recurrent costs Macro-level consideration
13WFP, Review of Selected National Experience with Food Aid Programme and Policies, The Bangladesh Experience, WFP/CFA 16/4, Addendum 1, Rome, 1983. 14The Impact of the World Recession on Children - A Study Prepared for UNICEF,
R. Jolly and G.A. Cornia, eds, Pergamon Press, Oxford, 1984. See also UNICEF/ WFP, Food Aid and the Well-being of Children in the Developing World, New York, NY, USA, 1986, and E.J. Clay and D.J. Shaw, eds, Poverty, Development and Food, Macmillan, London, 1987; and WFP, Roles of Food Aid in Structural and Sector Adjustment, WFP/CFA: 23/5, Addendum 1, Rome, 1987.
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Limited overall domestic financing capacity at the macro level is a fundamental cause of the recurrent cost problem in developing countries, where savings ratios are low or even negative. Large subsistence sectors and weak trading sectors limit taxable capacity, which is further eroded by failure to adjust tax rates in step with inflation. For example, a report on the Bangladesh experience with food aid programmes and policies noted: ' . . . a major constraint to the utilisation of foreign aid for development is the inability to provide sufficient local counterpart funds. '13 This may take the form of unavailability of 'complementary financial inputs' and a shortage of non-food cost items. G o v e r n m e n t support of maintenance activities f o r ongoing projects must come from the same pool of 'uncommitted budgetary resources' (UBRs). In a situation of 'fungibility' - where resources are not earmarked for specific maintenance support - cuts in allocation of UBRs to maintenance has often been the soft option. Food aid may be especially important when structural adjustment is taking place for which the government, in the absence of food aid, would not have adequate resources to maintain its physical and social welfare infrastructure, or to protect the welfare of vulnerable groups. There is evidence that the impact of adjustment policies on the welfare of children and other vulnerable groups has been disproportionately heavy and resulted in a deterioration of their nutritional and overall living standards. 14 Following a meeting between the International Monetary Fund (IMF) and U N I C E F in 1985, it was agreed that the necessary austerity programmes for debtor and balance-of-payments deficit countries should not result in needless and counterproductive deprivation of children, pregnant and lactating women and other vulnerable groups. 217
Food aid and the recurrent cost problem in developing countries
There is strong evidence emerging for food aid to be used as a boost to purchasing power while avoiding inflation in many economies in sub-Saharan Africa, which have been distorted by successive shocks from drought, wars and unfavourable terms of trade. By using p r o g r a m m e food aid in an orthodox Keynesian role, purchasing power may be increased to permit rehabilitation of crucial infrastructure and O & M for existing projects. When food is locally available, cash transfers may be more cost effective than project food aid where famine is the result of certain households suffering a t e m p o r a r y loss of income, or their ability to produce food.l~ A cash transfer enables people to purchase food in local markets. In 1984, U N I C E F set up a targeted cash transfer pilot project in Ethiopia whereby initially 2000 p o o r families in the G o n d e r and Shoa regions received $17 per month. In return for the cash transfer, those physically able contributed labour to a range of local e m p l o y m e n t schemes, including maintenance of roads and irrigation facilities. The average cost of transporting a ton of grain from the port to the G o n d e r and Shoa regions was estimated by U N I C E F to be $130. The cash transfer avoided shipping m a r k e t e d surpluses from the rural regions to its cities, while sending high cost food aid in the opposite direction. The cash also enabled households to purchase other goods such as seeds and medicines vital for survival. The risk that food aid may lead to increasing dependence at the macro level for generating uncommitted budgetary resources must be recognized: the familiar squeezing of agriculture creates marketed food shortages, forcing commercial purchases from the world market. This in turn leads to financial pressures which force government to continue to squeeze agriculture, in part to finance imported commercial food purchases, Food aid gives a temporary help to marketed food shortages. The counterpart funds obtained in these circumstances can be used by Treasury for local costs including recurrent budget support. The danger is that a hard-pressed Treasury minister may find the counterpart fund trap extremely tempting. It is a way of using aid resources for local and recurrent budgets. It solves the urban food supply problem, it provides finance for domestic use, and given reasonable virement these funds can be extremely valuable to the Ministry. It could even in the extreme case tempt them to neglect agriculture. The link between counterpart funds and recurrent budget needs could actually drive this vicious circle. 16
15S. Reutlinger and J. Van Hoist Pelle-
kaan, Poverty and Hunger: Issues and Options for Food Security in Developing Countries, World Bank, Washington, DC, Feb 1986,,/bnd Food Aid for Development in Sub-Saharan Africa, World Food Programme/African Development Bank Seminar, Abidjan, WFP/CFA : 22/INF/8, 1986. 181. Carruthers, 'Factors influencing agricultural recurrent budget problems in developing countries', in J. Howell, ed, op cit, Ref 1.
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There is also a danger that food aid for recurrent costs may delay implementation of essential adjustment measures. Particularly where there are large numbers of staff engaged in projects which have ceased to be viable, food aid can be used - unproductively - to maintain the 'white elephants'. Also food-aided public works p r o g r a m m e may create assets of low value. However, available evidence indicates that m a n y World Food P r o g r a m m e (WFP) assisted maintenance activities and projects are characterized by high target achievement rates and good economic rates of return.
Micro-level considerations The obstacles to effective use of food aid in supporting recurrent costs are worsened by the inadequate planning of, and information on, project recurrent expenditures. There has often been excessive optimism in fixing time horizons for project completion. Recipient countries and donors use a conventional time frame for a project d e v e l o p m e n t
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Food aid and the recurrent cost problem in developing countries
17Gray and Marten, op cit, Ref 5. 18Carruthers, op cit, Ref 16.
phase of five years, primarily for reasons of financial and administrative convenience. Repeated extension/expansion phases and maintenance/ rehabilitation projects are a symptom of this excessive optimism in project planning. Present methods of shadow pricing in social cost benefit analysis are often deficient because they assign high opportunity costs for capital, when capital may not be scarce in certain aid situations, and low opportunity costs for labour. This distortion, combined with the discounting of future costs, favours projects with low capital costs but high recurrent costs for maintenance. Yet it is the skill, the staff, the equipment and the transport for maintenance which are in practice often the main constraint in project success. There appears to be no systematic criteria for determining resource allocation as between development and recurrent expenditure. In theory, the return on the increment of resource allocation in maintaining an existing project should equal the return on an additional new project at the margin. In practice, allocation seems to be a d h o c - a combination of bureaucratic, demand and supply determined factors. Bringing recurrent cost support out into the open as an investment alternative should facilitate a more rational assessment of resource needs and of food aid requirements and use. The very success of the expansion in development budgets may be in part a cause of strain on recurrent budgets. The growth of development programmes of governments and their aid partners has generated significant increases in demands for recurrent expenditure. Recent analysis of the recurrent cost problem has focused on the 'coefficient of effectiveness', ie the ratio of current expenditure on 'other goods and services' to expenditure on 'wages and salaries', in the public sector. 17 In the late 1970s the ratio declined in many of the low income countries so that public sector productive capacity, notably trained manpower, was unable to function efficiently for want of complementary inputs. In Zambia, between 1975 and 1982, the recurrent budget declined by 3.6% per year. However, personal emoluments have increased by 1.8% per year over the same period. Recurrent departmental charges which provide goods and services essential for executing programmes and projects have declined by 5.4% per year in real terms. The ratio of recurrent departmental charges to personal emoluments has declined from 0.95 : 1 in 1975 to 0.71 : 1 in 1982. In agriculture it declined from 3.9 : 1 in 1970 to 1 : 1 in 1980. Therefore, agricultural civil servants in 1980 had only 25% of the support they had in 1970.18 The contribution of food aid for maintenance work in this situation is complex. If it were simply added to the denominator as part of wages, the coefficient of effectiveness, and hence the recurrent cost problem, would appear to deteriorate. Is there a case for adding the value of the food aid to the numerator? If we do this we would be assuming that it is a complementary input and hence the recurrent cost problem would appear to improve. If food aid for maintenance work increases the availability of uncommitted budgetary resources, which are then committed in the form of complementary inputs, there would be an unambiguous gain. If, however, the release of UBRs was simply used to raise public sector wages and salaries, the coefficient of effectiveness would not improve. Although this measure has many weaknesses, it shows that the policy option to improve the recurrent cost problem is not, therefore, a one-off x
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Food aid and the recurrent cost problem in developing countries
decision but should be seen as a sequence of decisions conditional upon a wider policy environment. This analysis may also suggest that, especially for 'development' projects, the e~-coefficient, ie the unit value of commodity to recipient per unit cost of delivered commodity, is too narrow a measure of food aid effectiveness. 19 Some composite measure may be necessary which includes the recurrent cost problem at both the micro and macro levels.
Food aid and responses to the recurrent cost problem The symptoms and causes of the recurrent cost problem operate at the macro and micro levels. The possible responses using food aid may likewise be analysed separately, although in practice they are overlapping and interdependent. Increasing commodities to support operation and maintenance within projects
17Gray and Marten, op cit, Ref 5. 18Carruthers, op cit, Ref 16. 19S. Reutlinger, 'Project food area and equitable growth: income transfer efficiency first!' World Development, Vo112, No 9, 1985, pp 901-911. 2°H. Singer, J. Wood and A. Jennings, Food Aid: The Challenge and the Opportunity, Oxford University Press, London, 1987, and A. Abeha, 'Development impact and the effectiveness of food aid: Ethiopian experience', Seminar on Food Aid, organized by the Government of the Netherlands on the occasion of the 20th anniversary of the WFP. 21S. Commander, Evaluation of WFP Projects 2638, 2684 and 2685, Overseas Development Institute, London, UK, 1984.
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There has been an extensive debate on the advantages and disadvantages of providing a food element in wages in food-for-work projects, although not specifically related to maintenance activities. Experience of the WFP in providing food for 'maintenance/rehabilitation' work has been favourable - food for maintenance/rehabilitation work in whole or part enables, inter alia, labour to be attracted, reduces absenteeism and raises productivity. Given the longer term commitment that may be implied by maintenance assistance, injecting food in an area could depress local prices and/or retrading could reduce prices and lead to substitution for locally grown produce by project participants. The evaluations of maintenance-related projects, in common with studies of major food-for-work programmes in Bangladesh and Ethiopia, have shown little evidence of localized disincentive effects. While improved maintenance should reduce the costs of production and supply, the additional employment and income generated, or released, by the maintenance project via the multiplier effect should, other things being equal, lead to compensatory increases in the demand for food. ~° Since a major purpose of food-for-work would be to encourage labour to participate in the maintenance activities, it is possible that labour may be drawn away from agricultural production. Given the longer term nature of maintenance assistance, a long-term food dole for small recipient economies could be created. There is no significant evidence from WFP experience that food aid results in sustained competition for labour having a negative impact on local production. In so far as maintenance work is seasonal, and complementary to agricultural production, the effect should be positive. 2~ Since the commitment of assistance for maintenance is not open ended, but phased out over a set period, no 'long-term food dole', or dependence mentality, should be created. Other problems which are generally applicable to food aid, eg delays, deterioration and losses, leading to a demoralized labour force, and the acceptability of food aid commodities to workers, do not appear to have any special features when applied to maintenance activities, but more specific research would be necessary. Case studies of success and failure of food-for-work in maintenance activities indicate that there is a greater chance of success if the local
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community plays a major role in project selection and the benefits are visible to and enjoyed by the local community, eg local feeder roads, rather than national highways. The institutional setting is of key importance, as illustrated by the positive role of peasant associations in Ethiopia and the negative role of social hierarchies in Bangladesh, in selecting projects of little benefit to the rural poor.
Generatingfinance by the 'monetization' of food aid Issues relating to the case for and against sales of food aid commodities either on the open market, or to designated beneficiaries, or as part of a project's purpose, are of wider significance than simply for funding maintenance activities. However, they do provide options which could give direct and immediate relief to the recurrent cost problem. They serve to emphasize a lack of significant complementarity both on the input side, as well as on the demand side, since the resources created are mostly specific to agricultural production. Food is used as subsistence capital to build up or maintain/rehabilitate agricultural infrastructure with the help predominantly of agricultural labour. 22 To the extent that there are unemployed and underemployed people, mobilizing so-called 'closed-loop' projects, ie involving sales of food aid commodities to beneficiaries having little complementarity with the rest of the economy because their requirements for uncommitted budgetary resources are low, it is possible to step up economic activity, sustained primarily by food aid.
Strengthening support for non-food items From the inception of the WFP, it was realized that food, by itself, could not always be a sufficient input for the attainment of development goals. The WFP General Regulations stipulate that all expenses connected with project implementation are to be borne by recipient countries, either from their own budgets or from external sources. Where recipient countries have difficulty in meeting such expenses the following options are suggested: •
• • •
22S. Chackravartv and P.N. RosensteinRodan, The Linking of Food Aid with Other Aid, WFP Studies No 6, Rome, Italy, 1965.
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joint action with bilateral and multilateral donors to provide complementary inputs; non-government organizations to provide financial/technical inputs; in exceptional cases, the local sale of WFP commodities; provision by the WFP of equipment and expertise directly connected with the use of food.
The Non-Food Items Unit in the WFP's Resources and Transport Division works in close collaboration with the Programme's Operations Division and country staff in identifying non-food items. The requests are listed in a catalogue which is published twice a year and distributed to all potential donors. The WFP may submit exceptionally urgent requests directly to donors. In practice, the level of contributions received by the WFP is inadequate and unpredictable. In 1974 the resources for non-food items mobilized by the unit were $2.3 million, as against WFP commitments to development projects of $106 million. By 1986 the respective figures were $10.9 million as against $629 million. Measures to strengthen support for non-food items, and potentially recurrent costs, include:
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•
• • • •
Revocation of the provision under which for the Least Developed Countries (LDCs) an estimated $1 million each year could be switched from inland transport subsidy funds for capital investment costs - including maintenance - which because they needed the transport subsidy was of little use. 23 The Executive Director is now authorized to allocate annually from WFP cash resources up to $1.5 million to meet requests from LDCs and low income, food deficit countries for non-food aid assistance essential for implementation of projects. Although it introduces an element of continuity and predictability, it is recognized as inadequate. Donors to increase their contribution to non-food resources. To mobilize support from private individuals and non-governmental organizations (NGOs) for non-food assistance. A special fund to be created to supplement limited cash resources that can be used to obtain non-food items. To improve the reliability of the forecasts of its cash availabilities and needs - this would include a realistic assessment of the recurrent costs of maintenance activities.
Establishing early warning indicators of recurrent cost problems The recurrent cost problem has two dimensions which influence the severity of its consequences - time and scope. The greater the time over which financing of recurrent costs of maintenance activities of a project are neglected, the less likely it is to reach its potential and the more likely it is that routine or periodic maintenance will be inadequate and that rehabilitation will be necessary. 'Scope' relates to the interdependence between projects and sectors, eg neglect in maintaining transport projects leading to failure of agricultural projects and vice versa. Ideally, planners should have available 'diagnostic indicators' which together would provide an early warning system to avoid recurrent cost problems. Research has been undertaken on 'diagnostics' at the macro level, for example, external financing or capital expenditure as shares of total expenditure, or the buoyancy of revenues - but so far without notable success. 24 The recurrent cost problems for many developing countries are not periodic but appear to be chronic, leading to economic 'emergency' situations, with appeals for balance-of-payments and programme aid, which effectively are maintenance support assistance. Information on diagnostic indicators at the macro level would therefore be of value, but the research is at a preliminary stage. At the micro level, information on recurrent expenditure coefficients of food-aided projects could also be useful as diagnostic indicators.
Encouraging more local community involvement and self-help
23WFP, Special Measures in Favour of Least Developed Countries in the Utilization of Multilateral Food Aid, WFP/CFA: 1/19, Rome, 1976. 2"P.S. Heller, The Problem of the Recurrent Costs in the Budgeting and Planning Process, Club du Sahel/CILSS Symposium on Recurrent Costs in the Sahel, Quagadougou, Upper Volta, Jan 1982.
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The objective is to minimize the complementary inputs required from 'outside' by encouraging 'local' contribution to the project success. The evidence from studies of WFP-assisted projects in Ethiopia and Bangladesh emphasize the importance of social and institutional characteristics. There are already cases in which the WFP is able to take advantage of a tradition of self-help, eg the 'dukdom system' in Bhutan and the 'minga system' in Bolivia. Another prerequisite appears to be clear specification of responsibilities. The Chinese approach may be instructive. Under the existing responsibility system, farmers are not normally recruited daily. Instead, the work is divided into separate tasks, which are assigned to individuals
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Food aid and the recurrent cost problem in developing countries or groups of individuals on a piece-rate basis. Exact responsibilities are defined in specifying the works to be undertaken and the amounts of food commodities to be given in compensation. These amounts are based on the work norms established for all activities and are distributed only after the work has been inspected and accepted by the project authorities. Similar lessons were derived from the ILO/UNO Special Public Works Programme case studies in Burundi and Tanzania (Sixth Joint Meeting, May 1984): 'In the end, it seems that the responsibility for maintenance falls on the beneficiaries' shoulders and that they must assume the greatest share, if not all the responsibility for it. This is why, then, popular participation is essential . . . . ' Supporting more economically viable projects In so far as a project succeeds in generating its own assets and resources, assistance for maintenance activities may be phased out. In Ghana, for example, food aid has been used in the rehabilitation of oil palm plantations but subject to the condition that it is intended to work as a vehicle for development, and its temporary provision is meaningful only if the developed plantations can later produce an adequate economic return. However, there are still difficult problems related to the appropriateness of charging user fees, existing tax burdens and hypothecation. Adverse international price changes and inappropriate pricing policies in the local economy may undermine productive sector investments. Taxation of farmers is already relatively high: levies of 40-50% are commonly levied on export crops. Given the subsistence character of most low-income, food-deficit country farming, the concepts of social and merit goods apply much more broadly than they would in Western agriculture. It has been argued that there is a much stronger case for subsidized services and for state intervention in support of food production in developing than in developed countries. 25 There are also difficult administrative problems in applying user charges in practice. However, the real difficulty is to identify the 'white elephants' and cases of gross mismanagement and inefficiency which continued food aid for recurrent costs would simply perpetuate as a drain on the economy. Increasing support for sectoral planning A major finding of the Club du Sahel/CILSS research was that individual projects could be viable, but the output of the sector could be significantly below its potential owing to recurrent cost problems. A food aid response should therefore include a sectoral dimension. A sectoral response is given added significance by the views of some donors that coordination could be achieved at the sector level and that sector aid may be a particularly useful form of development cooperation. 26
25D.K. Leonard, African Practice and the Theory of User Fees, ODI Workshop, 1983, p 81. 26DAC, OECD, Development Cooperation, Annual Review, Paris, 1984, and R. Browning, Donor Co-ordination, British Overseas Aid, London, 1983.
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A catalyst role In many low-income countries, such has been the damage of the recession and natural and man-made disasters that no single aid donor can hope to make a sustained significant impact. WFP-assisted projects specifically for maintenance/rehabilitation, or with a maintenance component, are characterized by involvement of other donors and aid
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Food aid and the recurrent cost problem in developing countries
agencies. In its General Regulations, the WFP is called upon to cooperate with other multilateral and bilateral donors. Given the limited availability of non-food resources for the WFP, and the importance of non-food items in maintenance activities for many projects, such a cooperating role is crucial. With this in mind, the WFP has been associated for some time with UNDP, UNICEF and UNFPA in a Joint Consultative Group on Policy designed to make real progress towards improved inter-agency coordination. This in fact has provided the framework for recent efforts to work jointly with UNICEF in Africa. Cooperation with the World Bank and IFAD is also closer. In the donor community there is a growing awareness that the pressures imposed on an individual recipient by the multiplicity and complexity of donor procedures and practices is intolerable, and a major cause of inefficiency.27 Support of maintenance activities is an area in which different donor practices create confusion. Coordination and cohesion could encourage a more efficient donor response. At the country level, since the recurrent cost problem has macro causes and symptoms, food aid, and financial donor agency participation in policy dialogue, is crucial. However, in analysing the recurrent cost problem in any one country, many different issues must be evaluated to understand fully its sources. In effect, the adequacy of the revenue-raising effort, the quality of the government's overall development programme, the quality of its economic policies, the effects of its past investment programme, the quality of the allocation of its revenue as between different types of expenditure, the quality of its budgeting and planning efforts must all be examined. Such analysis may form part of country food aid planning reviews that the WFP is carrying out, or may be done in cooperation with other agencies already engaged in this area, eg in structural and sector adjustment lending of the World Bank. The conventional wisdom is that aid agencies prefer to support development rather than maintenance activities. However, the WFP has already provided support for rehabilitation and maintenance activities. The WFP has a direct involvement via support of maintenance rehabilitation projects and partial involvement through multipurpose/ integrated production products. Human resource development projects are not covered by the definitions of recurrent costs based on concepts of 'installed capacity' and 'normal operation'. Nevertheless there is a case for including such projects to consider an appropriate policy response. Such projects may generate demands on recipient governments' scarce budgetary resources, eg for internal transport, storage and handling costs, and worsen the recurrent cost financing problems. Target food aid for nutrition intervention programmes for women and children are increasingly being geared towards wider development goals, stress being placed on a package of services including health care, functional literacy and vocational training, which have recurrent cost implications. At the 17th Session of the Committee on Food Aid Policies and Programmes, 'There was general support for the use of food aid to help meet maintenance and recurrent costs on a case by case basis'. If the WFP is to become more involved in assisting maintenance and rehabilitation projects, the need will increase to cooperate with other 27A. Jennings, Aid Modafity Study in Tan- financial aid agencies to supply complementary inputs and/or for the zania, UNCTAD, Geneva, 1981, and Robert Casson, Aid Effectiveness, Oxford WEE to be provided with more cash to finance complementary non-food University Press, London, 1986. inputs to sustain its food-aided projects.
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Food aid attd the recurrent cost problem in developing countries
G u i d e l i n e s for f u n d i n g r e c u r r e n t costs In the light of the foregoing assessment, the following might form elements of guidelines for determining the use of food aid for recurrent costs: •
•
•
• •
•
•
• •
•
•
The project or activity selected for support is considered to be within the development or humanitarian needs of the country, and within the priorities of the recipient government, and meets normal appraisal criteria (economic, technical, social and environmental). Projects which have as their key objective maintenance/ rehabilitation should be subject to the usual cost-benefit and/or cost-effectiveness analysis; assess the backlog in O&M requirements and identify the instances where the maintenance/ rehabilitation expenditures (to be funded separately) are required; consider the case for giving priority to funding adequate O&M of existing productive assets, over the financing of new investments. It is appropriate to use food as part of a resource package, available commodities are acceptable to the proposed food recipients; possible production (policy, price, labour) and other (food habits, dependency) disincentives have been assessed, and whether any risks are reasonable in relation to the potential benefits of using food for maintenance support; food-effectiveness indicators should be used to illustrate the appropriateness of food for maintenance support. The project or activity does not generate sufficient revenue to cover such costs. It is not feasible to introduce technical, economic, financial or management improvements to the project or activity which would eliminate the recurrent cost problem. The host country is unable to undertake the recurrent cost financing due to the shortage of local resources and its limited domestic financing capacity. There is an acceptable policy framework, or clear movement towards such a policy framework, to increase availability of local resources for recurrent costs. The support for recurrent cost funding is for a limited period, normally not exceeding 10 years. The host country is prepared to bear an increasing share of the recurrent costs over the period, and the arrangements including both the recipient's obligations and responsibilities, and the audit requirements, are clearly specified in the agreement; where the other donors are involved, their obligations and responsibilities should likewise be specified and coordinated. There is an emphasis on project design and training explicitly to take account of maintenance, and institution strengthening to help mobilize local participation and, where appropriate, local contributions from collection of cost-recovery users' charges. There is to be monitoring of project and activity performance closely and frequently to determine whether assistance should be continued.
Conclusion Food aid is already making a significant contribution in the attempt to FOOD POLICY August 1987
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Food aid and the recurrent cost problem in developing countries
overcome the harmful effects of recurrent cost problems at both the macro and micro levels. This role of food aid as a more flexible development instrument has evolved in an ad hoc way. There is an array of possible policy responses, including increasing commodities to support operation and maintenance within projects, monetization, encouraging more community involvement and self-help, supporting more economically viable projects, and acting as a catalyst among other donors. This flexibility is a major advantage, given the diversity in the causes of the recurrent cost problem. There are dangers of disincentive effects, increasing dependency and reducing the coefficient of effectiveness of resources in the public sector, etc. As with other objectives, each case of using food aid to support recurrent costs must be examined on its own merits.
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Anthony Jennings and D. John Shaw Recurrent cost problems are currently being faced by many developing countries and are especially acute in the poorest of them. Although inadequate operation and maintenance is recognized as a key problem area, there is an emerging consensus that there is no simple cause of the recurrent cost problem and that an effective response requires a broad package of measures, including domestic policy changes and international support measures. This article briefly assesses the significance of the recurrent cost problem and discusses the scope for food aid in support of current costs. A range of possible policy options are considered as part of a response. Finally elements of a set of guidelines for determining the funding of current costs are suggested.
/Anthony Jennings is a'lecturer in Economics at the University of Leicester, UK. He has also worked as a government economist in Botswana and Malawi, and for the United Nations on the Programme for Least Developed Countries//.D. John Sha@~ is the Senior Economist, (bffice of Evalua-' tion and Policy, World Food Programme, Rome, Italy/
Recurrent cost problems are currently faced by many developing countries and are especially acute in the poorest of them. In the UN General Assembly Special Session on the crisis in Africa in May 1986, inadequate operation and maintenance (O&M) was recognized as a key problem area. There is now an awareness among governments and donor agencies of the symptoms and effects of the recurrent cost problem at the macro and micro levels. 1 There is an emerging consensus that there is no simple cause of the recurrent cost problem and that an effective response requires a broad package of measures, including domestic policy changes and international support measures. Aid agencies responding to the increasing pressure for recurrent cost support have prepared policy papers for discussion 2 and issued guidance notes for the benefit of their country and headquarters staff. 3 Guidelines on Recurrent and Local Cost Financing have been issued by the Development Assistance Committee (DAC) of the Organization for Economic Co-operation and Development ( O E C D ) to which its members are committed: In recent D A C deliberations, Members have recognized the need for greater allocation of resources to maintaining, upgrading and, where necessary, rehabilitating existing capital stock which is essential to meeting basic human needs and supporting economic growth especially in low-income countries. The need for greater attention to the long-term viability of projects and programmes has also been recognized. 4
This article is based on a report, following a consultancy for the World Food Programme, produced i n collaboration with John Howell, Deputy Director, Overseas Development Institute, London. The views expressed in the paper are those of the authors and do not necessarily represent the views of their institutions.
This article briefly assesses the significance of the recurrent cost problem and discusses the scope for food aid in support of recurrent costs. A range of possible policy options are considered as part of a response. Finally, elements of a set of guidelines for determining the funding of recurrent costs are suggested.
1E.J. Clay and H.W. Singer, Food Aid and Development: Issues and Evidence, Occasional Papers No 3, WFP, Rome, Italy, 1985. J. Howell, ed, Recurrent Costs and Agricultural Development, Overseas Development Institute, London, UK, 1985, continued on page 214
Significance of recurrent cost problem Inadequate planning and preparation, and shortage of budgetary resources, for the operation and maintenance of projects is a matter of serious concern in many developing countries. In the past, new investments have been favoured in the planning and budget allocation
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Food aid and the recurrent cost problem in develophzg countries
processes in developing countries, and external donors have tended to give lower priority to the upkeep of ongoing projects. The under-provision of operation and maintenance has contributed to the low utilization of productive assets. Supposedly productive proiects at the end of their development phase have still not proved selfsupporting, and so they enter a second, third or later 'expansion' phase. Estimated project benefits are substantially lower than predicted. Heavy expenditure incurred on project rehabilitation and/or modification would not have been necessary if facilities had been operated properly and if regular maintenance and major repair works had taken place at the appropriate time. Hard-won advances in the build-up of economic and social infrastructure are at risk as, for example, road and water supply systems deteriorate. There may be adequate recurrent resources to fund a project at a desired level, but inadequate resources to fund similar projects to satisfy demand in the sector as a whole. Thus a recurrent cost problem may arise not in an individual project output falling short of expectations because of inadequate recurrent funding, but in the shortfall in the output of a sector as a whole. The interdependence of sectors - eg agriculture and transport - means the problems may spread. Poor roads and broken-down vehicles with no spare parts means that fertilizer and other key agricultural inputs are not available to farmers and good harvests may not reach the market. At the macro level, fiscal deficits worsen and fewer budgetary resources to support complementary project inputs remain 'uncommitted', after payment of debt service, salaries and wages, etc. This emphasizes the need to ensure a balance between manpower and other recurrent expenses, as well as the need to improve staff efficiency and to reduce unit costs. Some evidence indicates that even when recurrent budgets are high, and/or any deficit is small, a large share of available funds is spent on wages and salaries, leaving few resources for essential materials and spare parts, as complementary inputs to implement the project adequately. The complex nature of the problem of recurrent costs, and the urgent continued from page 213 need to estimate the recurrent expenditure requirements of new and A. Jennings, 'The recurrent cost problem in the least developed countries', investments more accurately, have been increasingly recognized by Journal of Development Studies, Vol 19, governments in developing countries and donor agencies. The need for No 2, 1983. improved institutional arrangements and adequate funding for O&M is 2USAID, Recurrent Costs, Policy Paper, also recognized by both sides of the aid partnership. Washington, DC, USA, May 1982. 3UK Overseas Development Administration, Aid for Recurrent Costs, Policy Guidance Note, No 28, London, UK, Oct 1982. 4Development Assistance Committee, OECD, Development Co-operation Review, Guidelines on Local and Recurrent Cost Financing, Paris, 1980, and DAC, Additional Guidelines on Aid for Maintenance, 1982. 5Club du Sahel/CILSS, Recurrent Costs of Development Programmes in Countries of the Sahel. Analysis and Recommendations, Paris, 1980; C. Gray and A. Marten, The Pofitical Economy of the Recurrent Cost Problem in the West African Sahel,
Harvard Development Discussion Paper 128, Cambridge, MA, USA, 1982; also Symposium on Recurrent Costs in the Sahel, Quagadougou, Upper Volta, Club du Sahel/CILSS, Jan 1982.
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Difficulties in defining recurrent cost problem The most comprehensive and rigorous attempt to study the recurrent cost problem has been carried out by the Club du Sahel/Committee Permanent Inter-Etats de Lutte Contre la Sacheresse dans le Sahel (CILSS). 5 They define recurrent costs as: The set of annual flows of gross expenditure of the government and its agencies,
in local currency or foreign exchange, undertaken in order to generate socio-economic benefits in connection with the operation and maintenance of a unit of installed capacity, regardless of the source of finance of the expenditure in question, domestic or foreign. They define non-recurrent costs as: All expenditures incurred in connection with establishing this capacity,
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Food aid and die recurrent cost problem in developing countries
regardless of the nature of the expenditure (purchase of capital goods or current imports, personnel payments, etc), the type of payment (in foreign exchange or local currency), and the source of financing. They propose the use of a 'gross' measure of recurrent expenditure rather than a 'net' measure (ie before subtracting public sector receipts, in cash or in kind, to which a project may give rise), and they define optimal O&M of a project in determining the 'proper' level of recurrent cost, in the light of overall development objectives for the Sahel, rather than the rigid economic or technical criteria. The United Nations Development Programme (UNDP)/International Labour Organization (ILO), in their Special Public Works Programmes (SWPs), distinguish between, first, initial investment (the development budget), which includes technical capital, the infrastructure of construction, and human and institutional capital, in the case of personnel who have been specifically trained for the efficient and viable use of the initial investment; and, secondly, recurrent costs (the operating budget) which includes use and maintenance of technical capital, and expenditure related to providing for workers to operate the technical capital. 6 By definition, SWPs are 'major programmes of minor works', and maintenance for five main categories of infrastructure are distinguished: •
•
Irrigation schemes. Cleaning out drainage and irrigation canals,
slope and bund cleaning and backfilling, levelling plots, maintenance of water intakes, manholes and sluice gates, backfilling and compacting small earth dams. Soil conservation. (a) In forest plantations - weed-control and cleaning of young plantations, replacing unhealthy seedlings, pruning and thinning, firebelt clearing; (b) in erosion control works ditch cleaning, evening out cuts and fills, maintenance of hedges and retaining walls. Road infrastructures. Cleaning ditches and run-offs, cleaning pipes, culverts and bridge approaches, raking shoulders and banks, filling potholes and cracks (patching), filling and repacking damaged stretches, minor structural repairs. Water supply. Cleaning approaches to facilities, cleaning wells, reservoirs and catchment structures, replacing damaged water mains. Buildings. Roof maintenance, casting, walls, unclogging water drains and cleaning approaches.
-
•
•
•
The Investment Centre of the Food and Agriculture Organization of the United Nations, in its Guidelines for the Preparation of Agricultural Investment Projects, states: Definition of Costs - the concept of capital items and hence expenditures, is
8UNDP/ILO, The Problem of Post Project
quite broad, and is based on the definition of capital expenditure as those which create 'assets', which are expected to produce a stream of goods and services over a period of years. 7
Maintenance in Special Public bWorks Programmes, Geneva, 1982, and/Special
For operating costs the guidelines state:
Issues Item 4 of the Agenda for the 6th Special Public Works Programmes, Geneva, 1984./ 7Investment Centre, FAO, Guidelines for the Preparation of Agricultural Investment Projects, revised Aug 1982. 81bid.
F O O D P O L I C Y August 1987
Where applicable a table giving phased operating costs should be included. The table, largely derived from the appropriate budgets should show by categories the operating costs for the project farms, the cost of recurring project operated businesses, and the cost of continuing project administration services after expiry of project implementation,s 215
Food aid and the recurrent cost problem in developing countries
The International Fund for Agricultural D e v e l o p m e n t ( I F A D ) , in a policy paper, does not discuss definitions of recurrent costs, but states: The Fund will normally consider for inclusion as project costs only the incremental operating costs arising during the project's implementation period. Where, however, such recurrent costs could prove burdensome to the country's budget at the end of the implementation period, the fund will consider financial assistance for a limited period, in exceptional circumstances, and on a case-by-case basis. 9 Individual bilateral donors vary in their interpretations of recurrent costs. U S A I D , in its policy paper, defines recurrent costs as: Simply those costs of development activities which recur. Thus while the capital cost of any given project, be it a school or a dam, is usually incurred over a short time period, from one to five years, the recurrent costs associated with that asset, teachers' salaries, road maintenance equipment repair - will be maintained over the lifetime of the asset; from twenty to fifty years or more) ° The U K ' s Overseas D e v e l o p m e n t Administration ( O D A ) , in its Policy Guidance Note on Recurrent Costs Financing, makes the distinction between 'offshore' recurrent costs and 'local' capital costs of projects, which it often funds in part or in whole, and 'local' recurrent costs which it does not normally fund. A functional distinction is also drawn between uses of aid for recurrent costs: which may be expected to have a significant impact on the performance of the sector, in particular by strengthening local institutions including local organisational management capability . . . and strictly 'routine' recurrent expenditure purposes should be carefully scrutinised and if possible avoided. 11 In the guidelines adopted by the O E C D D e v e l o p m e n t Assistance C o m m i t t e e in May 1979, and hence endorsed by the m a j o r developed m a r k e t e c o n o m y governments, recurrent cost financing was defined as: transfers of freely-convertible foreign-exchange, or counterpart funds generated from commodity aid, for procurement of goods and services (including salaries of local personnel) required for maintaining and operating a given project/ programme during and after completion of the initial financing. 12 At its simplest, total project cost may be presented in the following form: P c = (KL + KF) + (RL + RF)
9International Fund for Agricultural Development, Lending Policies and Criteria, IFAD/8/REVl, Dec 1978. l°Op cit, Ref 2. 110p cit, Ref 3. 120p cit, Ref 4.
216
where P c is total project cost: KL is capital or installation costs - local, eg materials locally available and local labour to reach 'normal operation'; K F is capital or installation costs - offshore, eg imports of materials, foreign labour to reach 'normal operation'; RL is recurrent costs - local, eg materials locally available and local labour used in normal operation; R F is recurrent costs - offshore, eg imports of machinery, spare parts, materials, foreign labour in normal operation. An advantage of this approach is that it encourages both recipient and donor to be more realistic and explicit about the length of time actually required to 'establish' the type of 'productive capacity' inherent in the project. To bring productive activities to a stage of 'normal operation' is often much longer than the standard 'initial financing phase', which m a y be only two or three years, and not a function of budget regulations and statutory limits on c o m m i t m e n t and disbursement periods. Longer, m o r e realistic planning periods, and multi-year commitments, should therefore be encouraged.
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Food aid and the recurrent cost problem in developing countries
A difficulty of treating all O & M costs up to 'normal operation' as recurrent costs is that for many projects there is likely to be a problem of 'open-endedness' with financing for the attainment of 'normal operations' standards pre-empting any new expenditure. There could also be a problem of increased dependency on external assistance. A further difficulty is that the concept of 'normal operation' involves considerable subjective judgment. It implies that both the generation of benefits and cost recovery have reached a plateau or stable trend such that the long-run recurrent cost burden may be assessed with a reasonable degree of accuracy. It does not imply 'viability' in the sense of assurance that finance will be available, either internal or external, to meet the future costs of operating and maintaining the project in accordance with its original design. Many questions remain unanswered from the different definitions of recurrent costs used by multilateral and bilateral donors. How to determine installed capacity? How to determine 'normal' project operation? How to distinguish between 'routine' and 'periodic' maintenance, and between maintenance and rehabilitation? How to avoid open-endedness and dependency? Should a functional distinction be made between uses of aid for recurrent costs, which could be expected to have a significant impact on the performance of the sector and to avoid 'routine' maintenance? All these are questions needing further research, clarification and common understanding.
Scope for food aid in support of recurrent costs Macro-level consideration
13WFP, Review of Selected National Experience with Food Aid Programme and Policies, The Bangladesh Experience, WFP/CFA 16/4, Addendum 1, Rome, 1983. 14The Impact of the World Recession on Children - A Study Prepared for UNICEF,
R. Jolly and G.A. Cornia, eds, Pergamon Press, Oxford, 1984. See also UNICEF/ WFP, Food Aid and the Well-being of Children in the Developing World, New York, NY, USA, 1986, and E.J. Clay and D.J. Shaw, eds, Poverty, Development and Food, Macmillan, London, 1987; and WFP, Roles of Food Aid in Structural and Sector Adjustment, WFP/CFA: 23/5, Addendum 1, Rome, 1987.
FOOD P O L I C Y August 1987
Limited overall domestic financing capacity at the macro level is a fundamental cause of the recurrent cost problem in developing countries, where savings ratios are low or even negative. Large subsistence sectors and weak trading sectors limit taxable capacity, which is further eroded by failure to adjust tax rates in step with inflation. For example, a report on the Bangladesh experience with food aid programmes and policies noted: ' . . . a major constraint to the utilisation of foreign aid for development is the inability to provide sufficient local counterpart funds. '13 This may take the form of unavailability of 'complementary financial inputs' and a shortage of non-food cost items. G o v e r n m e n t support of maintenance activities f o r ongoing projects must come from the same pool of 'uncommitted budgetary resources' (UBRs). In a situation of 'fungibility' - where resources are not earmarked for specific maintenance support - cuts in allocation of UBRs to maintenance has often been the soft option. Food aid may be especially important when structural adjustment is taking place for which the government, in the absence of food aid, would not have adequate resources to maintain its physical and social welfare infrastructure, or to protect the welfare of vulnerable groups. There is evidence that the impact of adjustment policies on the welfare of children and other vulnerable groups has been disproportionately heavy and resulted in a deterioration of their nutritional and overall living standards. 14 Following a meeting between the International Monetary Fund (IMF) and U N I C E F in 1985, it was agreed that the necessary austerity programmes for debtor and balance-of-payments deficit countries should not result in needless and counterproductive deprivation of children, pregnant and lactating women and other vulnerable groups. 217
Food aid and the recurrent cost problem in developing countries
There is strong evidence emerging for food aid to be used as a boost to purchasing power while avoiding inflation in many economies in sub-Saharan Africa, which have been distorted by successive shocks from drought, wars and unfavourable terms of trade. By using p r o g r a m m e food aid in an orthodox Keynesian role, purchasing power may be increased to permit rehabilitation of crucial infrastructure and O & M for existing projects. When food is locally available, cash transfers may be more cost effective than project food aid where famine is the result of certain households suffering a t e m p o r a r y loss of income, or their ability to produce food.l~ A cash transfer enables people to purchase food in local markets. In 1984, U N I C E F set up a targeted cash transfer pilot project in Ethiopia whereby initially 2000 p o o r families in the G o n d e r and Shoa regions received $17 per month. In return for the cash transfer, those physically able contributed labour to a range of local e m p l o y m e n t schemes, including maintenance of roads and irrigation facilities. The average cost of transporting a ton of grain from the port to the G o n d e r and Shoa regions was estimated by U N I C E F to be $130. The cash transfer avoided shipping m a r k e t e d surpluses from the rural regions to its cities, while sending high cost food aid in the opposite direction. The cash also enabled households to purchase other goods such as seeds and medicines vital for survival. The risk that food aid may lead to increasing dependence at the macro level for generating uncommitted budgetary resources must be recognized: the familiar squeezing of agriculture creates marketed food shortages, forcing commercial purchases from the world market. This in turn leads to financial pressures which force government to continue to squeeze agriculture, in part to finance imported commercial food purchases, Food aid gives a temporary help to marketed food shortages. The counterpart funds obtained in these circumstances can be used by Treasury for local costs including recurrent budget support. The danger is that a hard-pressed Treasury minister may find the counterpart fund trap extremely tempting. It is a way of using aid resources for local and recurrent budgets. It solves the urban food supply problem, it provides finance for domestic use, and given reasonable virement these funds can be extremely valuable to the Ministry. It could even in the extreme case tempt them to neglect agriculture. The link between counterpart funds and recurrent budget needs could actually drive this vicious circle. 16
15S. Reutlinger and J. Van Hoist Pelle-
kaan, Poverty and Hunger: Issues and Options for Food Security in Developing Countries, World Bank, Washington, DC, Feb 1986,,/bnd Food Aid for Development in Sub-Saharan Africa, World Food Programme/African Development Bank Seminar, Abidjan, WFP/CFA : 22/INF/8, 1986. 181. Carruthers, 'Factors influencing agricultural recurrent budget problems in developing countries', in J. Howell, ed, op cit, Ref 1.
218
There is also a danger that food aid for recurrent costs may delay implementation of essential adjustment measures. Particularly where there are large numbers of staff engaged in projects which have ceased to be viable, food aid can be used - unproductively - to maintain the 'white elephants'. Also food-aided public works p r o g r a m m e may create assets of low value. However, available evidence indicates that m a n y World Food P r o g r a m m e (WFP) assisted maintenance activities and projects are characterized by high target achievement rates and good economic rates of return.
Micro-level considerations The obstacles to effective use of food aid in supporting recurrent costs are worsened by the inadequate planning of, and information on, project recurrent expenditures. There has often been excessive optimism in fixing time horizons for project completion. Recipient countries and donors use a conventional time frame for a project d e v e l o p m e n t
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Food aid and the recurrent cost problem in developing countries
17Gray and Marten, op cit, Ref 5. 18Carruthers, op cit, Ref 16.
phase of five years, primarily for reasons of financial and administrative convenience. Repeated extension/expansion phases and maintenance/ rehabilitation projects are a symptom of this excessive optimism in project planning. Present methods of shadow pricing in social cost benefit analysis are often deficient because they assign high opportunity costs for capital, when capital may not be scarce in certain aid situations, and low opportunity costs for labour. This distortion, combined with the discounting of future costs, favours projects with low capital costs but high recurrent costs for maintenance. Yet it is the skill, the staff, the equipment and the transport for maintenance which are in practice often the main constraint in project success. There appears to be no systematic criteria for determining resource allocation as between development and recurrent expenditure. In theory, the return on the increment of resource allocation in maintaining an existing project should equal the return on an additional new project at the margin. In practice, allocation seems to be a d h o c - a combination of bureaucratic, demand and supply determined factors. Bringing recurrent cost support out into the open as an investment alternative should facilitate a more rational assessment of resource needs and of food aid requirements and use. The very success of the expansion in development budgets may be in part a cause of strain on recurrent budgets. The growth of development programmes of governments and their aid partners has generated significant increases in demands for recurrent expenditure. Recent analysis of the recurrent cost problem has focused on the 'coefficient of effectiveness', ie the ratio of current expenditure on 'other goods and services' to expenditure on 'wages and salaries', in the public sector. 17 In the late 1970s the ratio declined in many of the low income countries so that public sector productive capacity, notably trained manpower, was unable to function efficiently for want of complementary inputs. In Zambia, between 1975 and 1982, the recurrent budget declined by 3.6% per year. However, personal emoluments have increased by 1.8% per year over the same period. Recurrent departmental charges which provide goods and services essential for executing programmes and projects have declined by 5.4% per year in real terms. The ratio of recurrent departmental charges to personal emoluments has declined from 0.95 : 1 in 1975 to 0.71 : 1 in 1982. In agriculture it declined from 3.9 : 1 in 1970 to 1 : 1 in 1980. Therefore, agricultural civil servants in 1980 had only 25% of the support they had in 1970.18 The contribution of food aid for maintenance work in this situation is complex. If it were simply added to the denominator as part of wages, the coefficient of effectiveness, and hence the recurrent cost problem, would appear to deteriorate. Is there a case for adding the value of the food aid to the numerator? If we do this we would be assuming that it is a complementary input and hence the recurrent cost problem would appear to improve. If food aid for maintenance work increases the availability of uncommitted budgetary resources, which are then committed in the form of complementary inputs, there would be an unambiguous gain. If, however, the release of UBRs was simply used to raise public sector wages and salaries, the coefficient of effectiveness would not improve. Although this measure has many weaknesses, it shows that the policy option to improve the recurrent cost problem is not, therefore, a one-off x
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Food aid and the recurrent cost problem in developing countries
decision but should be seen as a sequence of decisions conditional upon a wider policy environment. This analysis may also suggest that, especially for 'development' projects, the e~-coefficient, ie the unit value of commodity to recipient per unit cost of delivered commodity, is too narrow a measure of food aid effectiveness. 19 Some composite measure may be necessary which includes the recurrent cost problem at both the micro and macro levels.
Food aid and responses to the recurrent cost problem The symptoms and causes of the recurrent cost problem operate at the macro and micro levels. The possible responses using food aid may likewise be analysed separately, although in practice they are overlapping and interdependent. Increasing commodities to support operation and maintenance within projects
17Gray and Marten, op cit, Ref 5. 18Carruthers, op cit, Ref 16. 19S. Reutlinger, 'Project food area and equitable growth: income transfer efficiency first!' World Development, Vo112, No 9, 1985, pp 901-911. 2°H. Singer, J. Wood and A. Jennings, Food Aid: The Challenge and the Opportunity, Oxford University Press, London, 1987, and A. Abeha, 'Development impact and the effectiveness of food aid: Ethiopian experience', Seminar on Food Aid, organized by the Government of the Netherlands on the occasion of the 20th anniversary of the WFP. 21S. Commander, Evaluation of WFP Projects 2638, 2684 and 2685, Overseas Development Institute, London, UK, 1984.
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There has been an extensive debate on the advantages and disadvantages of providing a food element in wages in food-for-work projects, although not specifically related to maintenance activities. Experience of the WFP in providing food for 'maintenance/rehabilitation' work has been favourable - food for maintenance/rehabilitation work in whole or part enables, inter alia, labour to be attracted, reduces absenteeism and raises productivity. Given the longer term commitment that may be implied by maintenance assistance, injecting food in an area could depress local prices and/or retrading could reduce prices and lead to substitution for locally grown produce by project participants. The evaluations of maintenance-related projects, in common with studies of major food-for-work programmes in Bangladesh and Ethiopia, have shown little evidence of localized disincentive effects. While improved maintenance should reduce the costs of production and supply, the additional employment and income generated, or released, by the maintenance project via the multiplier effect should, other things being equal, lead to compensatory increases in the demand for food. ~° Since a major purpose of food-for-work would be to encourage labour to participate in the maintenance activities, it is possible that labour may be drawn away from agricultural production. Given the longer term nature of maintenance assistance, a long-term food dole for small recipient economies could be created. There is no significant evidence from WFP experience that food aid results in sustained competition for labour having a negative impact on local production. In so far as maintenance work is seasonal, and complementary to agricultural production, the effect should be positive. 2~ Since the commitment of assistance for maintenance is not open ended, but phased out over a set period, no 'long-term food dole', or dependence mentality, should be created. Other problems which are generally applicable to food aid, eg delays, deterioration and losses, leading to a demoralized labour force, and the acceptability of food aid commodities to workers, do not appear to have any special features when applied to maintenance activities, but more specific research would be necessary. Case studies of success and failure of food-for-work in maintenance activities indicate that there is a greater chance of success if the local
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community plays a major role in project selection and the benefits are visible to and enjoyed by the local community, eg local feeder roads, rather than national highways. The institutional setting is of key importance, as illustrated by the positive role of peasant associations in Ethiopia and the negative role of social hierarchies in Bangladesh, in selecting projects of little benefit to the rural poor.
Generatingfinance by the 'monetization' of food aid Issues relating to the case for and against sales of food aid commodities either on the open market, or to designated beneficiaries, or as part of a project's purpose, are of wider significance than simply for funding maintenance activities. However, they do provide options which could give direct and immediate relief to the recurrent cost problem. They serve to emphasize a lack of significant complementarity both on the input side, as well as on the demand side, since the resources created are mostly specific to agricultural production. Food is used as subsistence capital to build up or maintain/rehabilitate agricultural infrastructure with the help predominantly of agricultural labour. 22 To the extent that there are unemployed and underemployed people, mobilizing so-called 'closed-loop' projects, ie involving sales of food aid commodities to beneficiaries having little complementarity with the rest of the economy because their requirements for uncommitted budgetary resources are low, it is possible to step up economic activity, sustained primarily by food aid.
Strengthening support for non-food items From the inception of the WFP, it was realized that food, by itself, could not always be a sufficient input for the attainment of development goals. The WFP General Regulations stipulate that all expenses connected with project implementation are to be borne by recipient countries, either from their own budgets or from external sources. Where recipient countries have difficulty in meeting such expenses the following options are suggested: •
• • •
22S. Chackravartv and P.N. RosensteinRodan, The Linking of Food Aid with Other Aid, WFP Studies No 6, Rome, Italy, 1965.
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joint action with bilateral and multilateral donors to provide complementary inputs; non-government organizations to provide financial/technical inputs; in exceptional cases, the local sale of WFP commodities; provision by the WFP of equipment and expertise directly connected with the use of food.
The Non-Food Items Unit in the WFP's Resources and Transport Division works in close collaboration with the Programme's Operations Division and country staff in identifying non-food items. The requests are listed in a catalogue which is published twice a year and distributed to all potential donors. The WFP may submit exceptionally urgent requests directly to donors. In practice, the level of contributions received by the WFP is inadequate and unpredictable. In 1974 the resources for non-food items mobilized by the unit were $2.3 million, as against WFP commitments to development projects of $106 million. By 1986 the respective figures were $10.9 million as against $629 million. Measures to strengthen support for non-food items, and potentially recurrent costs, include:
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•
• • • •
Revocation of the provision under which for the Least Developed Countries (LDCs) an estimated $1 million each year could be switched from inland transport subsidy funds for capital investment costs - including maintenance - which because they needed the transport subsidy was of little use. 23 The Executive Director is now authorized to allocate annually from WFP cash resources up to $1.5 million to meet requests from LDCs and low income, food deficit countries for non-food aid assistance essential for implementation of projects. Although it introduces an element of continuity and predictability, it is recognized as inadequate. Donors to increase their contribution to non-food resources. To mobilize support from private individuals and non-governmental organizations (NGOs) for non-food assistance. A special fund to be created to supplement limited cash resources that can be used to obtain non-food items. To improve the reliability of the forecasts of its cash availabilities and needs - this would include a realistic assessment of the recurrent costs of maintenance activities.
Establishing early warning indicators of recurrent cost problems The recurrent cost problem has two dimensions which influence the severity of its consequences - time and scope. The greater the time over which financing of recurrent costs of maintenance activities of a project are neglected, the less likely it is to reach its potential and the more likely it is that routine or periodic maintenance will be inadequate and that rehabilitation will be necessary. 'Scope' relates to the interdependence between projects and sectors, eg neglect in maintaining transport projects leading to failure of agricultural projects and vice versa. Ideally, planners should have available 'diagnostic indicators' which together would provide an early warning system to avoid recurrent cost problems. Research has been undertaken on 'diagnostics' at the macro level, for example, external financing or capital expenditure as shares of total expenditure, or the buoyancy of revenues - but so far without notable success. 24 The recurrent cost problems for many developing countries are not periodic but appear to be chronic, leading to economic 'emergency' situations, with appeals for balance-of-payments and programme aid, which effectively are maintenance support assistance. Information on diagnostic indicators at the macro level would therefore be of value, but the research is at a preliminary stage. At the micro level, information on recurrent expenditure coefficients of food-aided projects could also be useful as diagnostic indicators.
Encouraging more local community involvement and self-help
23WFP, Special Measures in Favour of Least Developed Countries in the Utilization of Multilateral Food Aid, WFP/CFA: 1/19, Rome, 1976. 2"P.S. Heller, The Problem of the Recurrent Costs in the Budgeting and Planning Process, Club du Sahel/CILSS Symposium on Recurrent Costs in the Sahel, Quagadougou, Upper Volta, Jan 1982.
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The objective is to minimize the complementary inputs required from 'outside' by encouraging 'local' contribution to the project success. The evidence from studies of WFP-assisted projects in Ethiopia and Bangladesh emphasize the importance of social and institutional characteristics. There are already cases in which the WFP is able to take advantage of a tradition of self-help, eg the 'dukdom system' in Bhutan and the 'minga system' in Bolivia. Another prerequisite appears to be clear specification of responsibilities. The Chinese approach may be instructive. Under the existing responsibility system, farmers are not normally recruited daily. Instead, the work is divided into separate tasks, which are assigned to individuals
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Food aid and the recurrent cost problem in developing countries or groups of individuals on a piece-rate basis. Exact responsibilities are defined in specifying the works to be undertaken and the amounts of food commodities to be given in compensation. These amounts are based on the work norms established for all activities and are distributed only after the work has been inspected and accepted by the project authorities. Similar lessons were derived from the ILO/UNO Special Public Works Programme case studies in Burundi and Tanzania (Sixth Joint Meeting, May 1984): 'In the end, it seems that the responsibility for maintenance falls on the beneficiaries' shoulders and that they must assume the greatest share, if not all the responsibility for it. This is why, then, popular participation is essential . . . . ' Supporting more economically viable projects In so far as a project succeeds in generating its own assets and resources, assistance for maintenance activities may be phased out. In Ghana, for example, food aid has been used in the rehabilitation of oil palm plantations but subject to the condition that it is intended to work as a vehicle for development, and its temporary provision is meaningful only if the developed plantations can later produce an adequate economic return. However, there are still difficult problems related to the appropriateness of charging user fees, existing tax burdens and hypothecation. Adverse international price changes and inappropriate pricing policies in the local economy may undermine productive sector investments. Taxation of farmers is already relatively high: levies of 40-50% are commonly levied on export crops. Given the subsistence character of most low-income, food-deficit country farming, the concepts of social and merit goods apply much more broadly than they would in Western agriculture. It has been argued that there is a much stronger case for subsidized services and for state intervention in support of food production in developing than in developed countries. 25 There are also difficult administrative problems in applying user charges in practice. However, the real difficulty is to identify the 'white elephants' and cases of gross mismanagement and inefficiency which continued food aid for recurrent costs would simply perpetuate as a drain on the economy. Increasing support for sectoral planning A major finding of the Club du Sahel/CILSS research was that individual projects could be viable, but the output of the sector could be significantly below its potential owing to recurrent cost problems. A food aid response should therefore include a sectoral dimension. A sectoral response is given added significance by the views of some donors that coordination could be achieved at the sector level and that sector aid may be a particularly useful form of development cooperation. 26
25D.K. Leonard, African Practice and the Theory of User Fees, ODI Workshop, 1983, p 81. 26DAC, OECD, Development Cooperation, Annual Review, Paris, 1984, and R. Browning, Donor Co-ordination, British Overseas Aid, London, 1983.
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A catalyst role In many low-income countries, such has been the damage of the recession and natural and man-made disasters that no single aid donor can hope to make a sustained significant impact. WFP-assisted projects specifically for maintenance/rehabilitation, or with a maintenance component, are characterized by involvement of other donors and aid
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agencies. In its General Regulations, the WFP is called upon to cooperate with other multilateral and bilateral donors. Given the limited availability of non-food resources for the WFP, and the importance of non-food items in maintenance activities for many projects, such a cooperating role is crucial. With this in mind, the WFP has been associated for some time with UNDP, UNICEF and UNFPA in a Joint Consultative Group on Policy designed to make real progress towards improved inter-agency coordination. This in fact has provided the framework for recent efforts to work jointly with UNICEF in Africa. Cooperation with the World Bank and IFAD is also closer. In the donor community there is a growing awareness that the pressures imposed on an individual recipient by the multiplicity and complexity of donor procedures and practices is intolerable, and a major cause of inefficiency.27 Support of maintenance activities is an area in which different donor practices create confusion. Coordination and cohesion could encourage a more efficient donor response. At the country level, since the recurrent cost problem has macro causes and symptoms, food aid, and financial donor agency participation in policy dialogue, is crucial. However, in analysing the recurrent cost problem in any one country, many different issues must be evaluated to understand fully its sources. In effect, the adequacy of the revenue-raising effort, the quality of the government's overall development programme, the quality of its economic policies, the effects of its past investment programme, the quality of the allocation of its revenue as between different types of expenditure, the quality of its budgeting and planning efforts must all be examined. Such analysis may form part of country food aid planning reviews that the WFP is carrying out, or may be done in cooperation with other agencies already engaged in this area, eg in structural and sector adjustment lending of the World Bank. The conventional wisdom is that aid agencies prefer to support development rather than maintenance activities. However, the WFP has already provided support for rehabilitation and maintenance activities. The WFP has a direct involvement via support of maintenance rehabilitation projects and partial involvement through multipurpose/ integrated production products. Human resource development projects are not covered by the definitions of recurrent costs based on concepts of 'installed capacity' and 'normal operation'. Nevertheless there is a case for including such projects to consider an appropriate policy response. Such projects may generate demands on recipient governments' scarce budgetary resources, eg for internal transport, storage and handling costs, and worsen the recurrent cost financing problems. Target food aid for nutrition intervention programmes for women and children are increasingly being geared towards wider development goals, stress being placed on a package of services including health care, functional literacy and vocational training, which have recurrent cost implications. At the 17th Session of the Committee on Food Aid Policies and Programmes, 'There was general support for the use of food aid to help meet maintenance and recurrent costs on a case by case basis'. If the WFP is to become more involved in assisting maintenance and rehabilitation projects, the need will increase to cooperate with other 27A. Jennings, Aid Modafity Study in Tan- financial aid agencies to supply complementary inputs and/or for the zania, UNCTAD, Geneva, 1981, and Robert Casson, Aid Effectiveness, Oxford WEE to be provided with more cash to finance complementary non-food University Press, London, 1986. inputs to sustain its food-aided projects.
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G u i d e l i n e s for f u n d i n g r e c u r r e n t costs In the light of the foregoing assessment, the following might form elements of guidelines for determining the use of food aid for recurrent costs: •
•
•
• •
•
•
• •
•
•
The project or activity selected for support is considered to be within the development or humanitarian needs of the country, and within the priorities of the recipient government, and meets normal appraisal criteria (economic, technical, social and environmental). Projects which have as their key objective maintenance/ rehabilitation should be subject to the usual cost-benefit and/or cost-effectiveness analysis; assess the backlog in O&M requirements and identify the instances where the maintenance/ rehabilitation expenditures (to be funded separately) are required; consider the case for giving priority to funding adequate O&M of existing productive assets, over the financing of new investments. It is appropriate to use food as part of a resource package, available commodities are acceptable to the proposed food recipients; possible production (policy, price, labour) and other (food habits, dependency) disincentives have been assessed, and whether any risks are reasonable in relation to the potential benefits of using food for maintenance support; food-effectiveness indicators should be used to illustrate the appropriateness of food for maintenance support. The project or activity does not generate sufficient revenue to cover such costs. It is not feasible to introduce technical, economic, financial or management improvements to the project or activity which would eliminate the recurrent cost problem. The host country is unable to undertake the recurrent cost financing due to the shortage of local resources and its limited domestic financing capacity. There is an acceptable policy framework, or clear movement towards such a policy framework, to increase availability of local resources for recurrent costs. The support for recurrent cost funding is for a limited period, normally not exceeding 10 years. The host country is prepared to bear an increasing share of the recurrent costs over the period, and the arrangements including both the recipient's obligations and responsibilities, and the audit requirements, are clearly specified in the agreement; where the other donors are involved, their obligations and responsibilities should likewise be specified and coordinated. There is an emphasis on project design and training explicitly to take account of maintenance, and institution strengthening to help mobilize local participation and, where appropriate, local contributions from collection of cost-recovery users' charges. There is to be monitoring of project and activity performance closely and frequently to determine whether assistance should be continued.
Conclusion Food aid is already making a significant contribution in the attempt to FOOD POLICY August 1987
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overcome the harmful effects of recurrent cost problems at both the macro and micro levels. This role of food aid as a more flexible development instrument has evolved in an ad hoc way. There is an array of possible policy responses, including increasing commodities to support operation and maintenance within projects, monetization, encouraging more community involvement and self-help, supporting more economically viable projects, and acting as a catalyst among other donors. This flexibility is a major advantage, given the diversity in the causes of the recurrent cost problem. There are dangers of disincentive effects, increasing dependency and reducing the coefficient of effectiveness of resources in the public sector, etc. As with other objectives, each case of using food aid to support recurrent costs must be examined on its own merits.
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